As digital asset transactions become increasingly common, taxpayers' understanding of their filing obligations has never been more crucial. If you've sold or otherwise traded cryptocurrency or nonfungible tokens (NFTs), you may be uncertain about how to report these activities on your taxes.
The Internal Revenue Service (IRS) has introduced new requirements for the 2023 tax year, with digital asset-related questions appearing for the first time on tax forms. Regardless of whether you engaged in digital asset transactions at any point during the tax year, you must provide accurate information in response to these questions.
Key Questions: The IRS now requires taxpayers to answer whether they received any digital assets (as rewards, payment, or compensation for services) during the tax year, or whether they sold, exchanged, or otherwise disposed of any digital assets or financial interests in them. Answering these questions truthfully — whether "Yes" or "No" — is essential for compliance.
Record-Keeping and Reporting Requirements
For those who did engage in digital asset transactions, the IRS mandates thorough documentation. Taxpayers must:
- Maintain complete records of all transactions
- Calculate capital gains or losses accurately
- Determine the cost basis for each transaction
All relevant digital asset transactions must be reported on the appropriate tax forms, even if they didn't result in taxable gains or losses. This comprehensive reporting helps prevent potential financial and legal complications while ensuring compliance with current regulations.
Why This Matters
The IRS has significantly increased its focus on digital asset transactions in recent years. These new reporting requirements reflect the growing mainstream adoption of cryptocurrencies and NFTs, and the agency's commitment to ensuring proper taxation of these assets.
Failure to comply with these reporting obligations could result in audits, penalties, or other enforcement actions. Tax professionals recommend that individuals who engaged in significant digital asset transactions consult with a tax advisor to ensure full compliance with the new requirements.